Issue Date: June 29, 2009
An Entrepreneurial Nonprofit
In the business of managing technology from conception to commercial development, few institutions have been at it longer than Battelle Memorial Institute. Since 1929, this nonprofit science and technology institution has been deeply involved in developing cost-effective solutions to some of society's most intractable scientific problems.
Today, Battelle is leading a consortium of U.S. utilities seeking a practical way to generate electricity using clean-coal technology. It has a significant role in a National Institutes of Health study that will soon follow 100,000 children from before birth to age 21 to scrutinize the interaction of genes and the environment on their health. And it is at the forefront of new armor technology to protect military vehicles and the personnel they carry against roadside bombs.
However, Battelle is also emerging as a business-savvy institution. With a front-row seat on the technology under development at national labs, Battelle is increasingly pushing for licenses to government advances or investing its own money in spin-off companies. And because it conducts contract research for business and government clients, it is capitalizing on its insight into market needs and developing breakthrough technology of its own.
Jeffrey Wadsworth, 58, who became Battelle's chief executive officer in January, says very simply, "We solve industry problems, invest in R&D, and invest in education." He is not shy about his desire to see Battelle make money. A former deputy director of science and technology for the Department of Energy's Lawrence Livermore Lab, Wadsworth joined Battelle in 2002. Before becoming CEO, he supervised Battelle's global lab management business, which includes six DOE labs and the new Department of Homeland Security lab.
Wadsworth says he is convinced that "innovation leads to huge technical advantages. And those advantages help build empires." Battelle's own innovation efforts have led to the growth of its lab management, contract research, and licensing business. And Wadsworth aims to keep that momentum going. "I like empires," he confesses.
In 1999, for instance, Battelle had revenues of just under $1 billion. By 2008, the figure was $4.6 billion. Battelle is many times larger than the second-largest U.S. scientific nonprofit research institution, Research Triangle Institute, which had revenues of $710 million last year. And Battelle dwarfs others such as SRI International, Midwest Research Institute, and Seti Institute.
Battelle's revenues from government lab management have grown from about $500 million in 1999 to $3.5 billion last year. Revenues from contract research in national security, life sciences, and energy technology were less than $400 million in 1999; last year they exceeded $1 billion.
The institution's 20,400 employees now work for more than 1,100 government and industry clients and, last year, collectively garnered 127 patents. In addition to its 55-acre headquarters and research operation, adjacent to Ohio State University in Columbus, it has a research center in nearby West Jefferson, Ohio, with labs devoted to biomedicine, hazardous materials, and high-energy research.
Other specialized labs and offices total about 130. Internationally, Battelle is setting up and will run a renewable energy lab for Petronas, Malaysia's state oil company, focused on tropical oils and solar energy. And it recently opened a generic drug testing facility with partner YuYu Pharma in Chuncheon City, South Korea, to help local drug companies globalize their businesses.
The $220 million Battelle Ventures fund, the venture capital arm Battelle set up in 2003, has a portfolio of 19 companies, many that are spin-offs from Battelle-managed national labs or are based on technology licensed from the labs. Run as a separate entity by a group of venture capitalists, the fund is "concerned with optimizing the rate of return on our investments so we can invest in facilities and people," Wadsworth says.
David A. Hurwitz, a marketing expert and managing director of Edica-Garnett Partners, says he has known of Battelle as long as he can remember. "They have a strong reputation as a commercial research contractor doing technically related consulting," he says.
Richard Razgaitis, a technology valuation consultant and former Battelle employee, says Battelle has always done cutting-edge work for both business and government. "They learn from one to benefit the other." As a successful problem solver, Battelle is, in a way, always putting itself out of work, Razgaitis notes. But since its experts keep up with the latest science advances, they are always ready to solve new technical challenges and win new research contracts.
As large and capable as it is today, Battelle started out quite small and with a limited mission. It opened its doors in Columbus in 1929 as what Wadsworth calls "a user center for medium-sized companies that couldn't afford test equipment." However, when customers showed up, they didn't just want access to the equipment, he says. Instead, "they asked us to do their research. It was early contract research and wasn't so common in that time."
The initial $1.5 million used to create the institute came from Gordon Battelle. He and his parents were investors in the steel and mining industries. In 1923, when he died childless at the age of 40 from an appendectomy that went wrong, Gordon Battelle left what was then a sizable fortune to create the institute. According to his will, the money was to be spent "for the purpose of education in connection with the encouragement of creative and research work and the making of discoveries and inventions in connection with the metallurgy of coal, iron, steel, zinc, and their allied industries."
Wadsworth, who has a Ph.D. in metallurgy from England's University of Sheffield, notes that Battelle wanted the institute to make money and support itself. Today, it is still a center of metallurgical expertise, but it has expanded its sights to include a variety of chemical, material, and life sciences disciplines. Over the years, Battelle has had a hand in developing corrosion-resistant metals, armor plating for tanks, automotive cruise control, tamper-resistant packaging, compact discs, and the coating on M&M candies.
In 1944, Battelle took a gamble when, instead of taking on the usual client research project, it hired physicist Chester F. Carlson and agreed to develop his new copier technology, known as xeroxography. Battelle licensed the technology to Haloid Co. of Rochester, N.Y., which came out with the first Xerox copier in 1950. "We made a lot of money from those patents," Wadsworth says. Battelle also made Carlson a wealthy man.
Gordon Battelle's will also specified that a portion of the institute's revenue fund charitable efforts. The institute spent $11 million last year to support civic, art, and human services programs. It also is deeply involved in education programs in science, technology, engineering, and math.
About a quarter of Battelle's revenue is tied to research for government and industry, much of it done under secrecy agreements. Battelle also undertakes research for which it has no specific contract but that looks like it has commercial promise. "I'm the internal venture capitalist," says Stephen E. Kelly, president of Battelle's national security business.
About 10 years ago, Kelly says, "we wouldn't have put skin in the game as we do now or moved certain things into production." Examples include aircraft and runway deicer fluids developed in cooperation with Pacific Northwest National Lab and a factory Battelle set up in Ohio to make a remote ocean-deployable carbon dioxide sensor.
For the deicing fluids, Battelle licensed technology from PNNL and then worked with scientists there to perfect them. Runway deicing fluids are typically an aqueous solution of potassium acetate. However, the potassium acetate interacts with carbon aircraft brakes, causing them to fail prematurely.
Battelle and PNNL also developed an environmentally friendly aircraft deicer to replace the current propylene glycol-based fluid. Satya Chauan, a chemical engineer who has worked at Battelle's Columbus labs for 35 years, explains that although propylene glycol breaks down in the environment, runoff into nearby waterways can kill fish. A mixture of propylene glycol and a biobased material is less harmful to fish, Chauan says.
Earlier this year, Basic Solutions, a Canadian deicing technology provider, licensed the runway deicer technology. Battelle licensed its aircraft deicer technology to Octagon Process, an Edison, N.J.-based deicing fluid supplier.
Battelle also took on the responsibility of manufacturing a remote CO2 monitoring system for the National Oceanic & Atmospheric Administration (NOAA). Because Battelle does environmental monitoring and remediation work for clients, it learned of efforts by the Monterey Bay Aquarium Research Institute, in California, to measure whether the ocean is acting as a source of, or sink for, CO2.
The Monterey Institute had designed a buoy-mounted device to be deployed at strategic locations in the ocean. The instrument incorporates a nondispersive infrared spectrometer and two-way data transmission capabilities. However, Monterey didn't have the resources to build the instrument in significant numbers for NOAA, which wanted to develop a global array of the remote-sensing devices, says Spencer Pugh, Battelle's vice president of industrial and international markets. So Battelle took on the challenge, figuring on a market of 300 to 400 units.
The investment, Pugh says, "is a way to advance science creatively." It is unusual for a nonprofit to set up a manufacturing operation, he admits. "We are supposed to be risk averse," Pugh says. "But if we can make enough to cover our investment, we'd do it again."
Battelle is gearing up for more such opportunities. Unfazed by the recession, in January the institute announced a $200 million expansion in Ohio. About $100 million will pay for a new research laboratory to expand biomedical capabilities. To open in 2011, the new facility will add about 200 scientists and technicians with expertise in areas such as pathology, toxicology, and molecular biology, says Barbara Kunz, president of Battelle's health and life sciences global business.
Much of the biomedical research Battelle does is covered by confidentiality agreements, Kunz says. But the institute does work, for instance, in preclinical toxicology, product development, manufacturing support, and postcommercial surveillance on drug use and effectiveness. "We support virtual biotech companies," Kunz says, but the institute does not itself do clinical trials.
Her unit is also involved in cooperative research and development agreements with several national labs to develop alternatives to animal-based consumer product testing. The goal, Kunz says, is to come up with less costly and more effective computer-based and in vitro test methods than are available today. Such a project might not see results for three to 10 years. Most businesses would not pay for such research, but Battelle takes a longer term view, Kunz notes.
Another Battelle development effort is a new instrument intended to identify pathogens in food and drugs. Known as the Rapid Enumerated Bioidentification system, it incorporates a Raman spectrometer in a box the size of a microwave oven to quickly analyze samples without the time-consuming culturing required in most other analytical systems.
Kunz says the technology for the bioidentification system came out of a project for the U.S. Army to develop a portable instrument that could detect pathogens in a war zone. Battelle modified the software with a library of reference data more appropriate for food and drug applications and is now looking for a partner to license and commercialize the instrument.
Donald P. McConnell, president of Battelle's energy technology business, says his unit is working with corporate and government clients on projects that include controlling carbon emissions from power plants and managing the country's electric grid.
"Utilities do not have basic R&D. We can essentially act as their R&D department," McConnell says. Battelle worked with California utilities and DOE to test "smart grid" ways to manage electricity distribution. The project included installation of devices that could, for instance, dial back thermostat settings in homes and buildings during periods of peak demand. "We learned," he says, "that we could reduce peak power demand by 16% and total power demand by 9% if we managed the grid properly."
In addition, Battelle manages the Midwest Regional Carbon Sequestration Project, one of seven partnerships established by DOE to study underground carbon storage to mitigate global climate change (C&EN, June 22, page 28). Members include power producers, engineering firms, and universities.
Battelle wants to make sure that technology it has had a hand in developing turns into new businesses. Kef Kasdin, a general partner in the independently managed Battelle Ventures, says the fund invests in companies that share the institute's interest in national security, health, and energy. About 80% of the fund is invested in areas related in some way to Battelle or the national labs, she says.
Strong relationships developed between Battelle, the fund, and the national labs since 2003 have helped fund managers find appropriate investments, Kasdin notes. Three companies in the portfolio were spun out of the national labs, while others are licensees of national lab technologies. "We can help accelerate unique technology at the national labs and at Battelle's own labs," she says.
A recent investment includes Hepregen, a spin-off from Massachusetts Institute of Technology that is commercializing a human "microliver" to predict drug toxicity. Among the fund's successes was the $73 million sale in November of Panomics, a maker of genetic, protein, and cellular analysis assays, to California-based genetic analysis firm Affymetrix. Battelle Ventures won't reveal the size of its initial investment in Panomics or its share of the proceeds.
Battelle Ventures is just one component of an organization that sees the management and advancement of knowledge and innovation as its reason for being. Unlike many for-profit corporations, CEO Wadsworth points out, Battelle is a scientific organization with a long-term view. And unlike many nonprofit groups, Battelle is willing to risk its own resources on unproven technology for the good of society—and hopefully profit as well.
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